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Dayton and GOP clash over fairness of tax plan

Gov. Mark Dayton and Republicans in the Minnesota Legislature are sparring over the definition of a fair tax system.

A week after the governor released his plan, Republicans are zeroing in on his sales tax and property tax proposals. Republicans in the House and Senate Tax committees blasted Dayton's budget plan Tuesday because they say it would force middle income Minnesotans to pay more in sales taxes.

Dayton disputes that claim and says he is creating a fair playing field for all Minnesotans by lowering property taxes and the sales tax rate. Dayton wants to lower the sales tax rate by 20 percent but expand the sales tax base to include consumer and business services.

The governor's plan would generate roughly $2 billion — half to erase the state's projected $1.1 billion budget deficit; the rest would pay for for education, economic development and property tax relief.

Property tax cuts were a key campaign promise by Dayton, an item not lost on Republican Sen. Julianne Ortman who called the governor's tax overhaul a "great deception."

"But I can't imagine why we would take sales tax dollars out of the pockets of middle income and poor Minnesotans just to write a check to property owners in the state of Minnesota," Ortman said. "I don't know why we'd do that unless it looked like — and forgive me for being cynical — a re-election plan."

Dayton said Ortman's comments are out of line and overlook the concerns of everyday Minnesotans. He said Ortman, who chaired the Senate Tax Committee when Republicans controlled the Legislature, helped engineer state policy that resulted in higher property taxes. He says his plan begins to reverse those policies.

"If she thinks that's a bad idea she should go around the state and promote that, because I don't think she'll find much agreement out there," Dayton said.

Fairness is at the heart of the tax debate. Dayton contends that the law is littered with tax breaks for businesses and special interests and that ordinary Minnesotans have been paying for those breaks. But by proposing a dramatic overhaul, Dayton has opened himself up to criticism for wanting to tax everyday items like clothing, haircuts and newspaper subscriptions.

Dayton defends his plan by noting it cuts business taxes, provides property tax relief and cuts the sales tax rate — things he suggests all make the tax system more fair for the majority of Minnesotans.

"People think that the present tax structure in Minnesotan is unfair to them, and they're right," Dayton said. "The property tax increases stick out as the most unfair part of it, so I want them to see that this government is going to be responsive to that outcry and we're going to propose to do something about it."

Dayton also said most Minnesotans would not see a net increase in taxes, they would just pay them in a different way.

But Republicans say property taxes could still go up under Dayton's plan because local governments set property taxes. They say property tax increases could be higher than the governor's rebate, and that people will pay more under the governor's sales tax plan. Republican Rep. Sarah Anderson of Plymouth said women are unfairly targeted under Dayton's sales tax on clothing.

"If you ever had to buy female clothing, there's a lot that's over $100 and that becomes a problem," Anderson said. "If you ever go on Pinterest and see all of the things that folks purchase there, there are a lot of items that are over $100."

Both the House and Senate tax committee hearings were dominated by Republicans criticizing Dayton's plan. Democrats, who control both the House and Senate, said little in Dayton's defense. DFL Rep. John Lesch of St. Paul was one of the few Democrats who appeared to endorse the governor's plan.

"You got to be able to do the hard right instead of the easy wrong. This is hard. Change is difficult to swallow, especially when it's the right thing to do," Lesch said.

Democrats are unlikely to start making any hard budget choices until the next revenue forecast is released late next month. The forecast will show whether the state has more or less money to work with than the earlier projection.